With the end of the Cold War and the fall of the Berlin Wall, the “end of history” was proclaimed according to Francis Fukuyama. But today democracy is under pressure again – from outside and inside. By Roland Woller

The market is efficient, all economic actors act rationally and state intervention in the free play of forces is harmful. That’s how we learned it and that’s how neoclassical economics teaches it. As a result, the years 1980 to 2000 were characterized by privatization, deregulation and flexibility. The state largely withdrew. Especially in the financial markets.

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In Europe, liability rules for banks have been relaxed and capital requirements have been weakened. The US abolished the separation of investment and commercial banks. New financial innovations flooded the market. Creativity – or rather greed – seemed to know no bounds. Until the Lehman bankruptcy and the bursting of the real estate bubble in 2007 threw the entire financial system out of joint.

The shock waves of the greatest financial and economic crisis after the Second World War also reached politics. Hyman Minsky, a largely unknown economist, pointed out these instabilities as early as 1986 in his book “Stabilizing an Unstableeconomie”. The core thesis of the crisis prophet Minsky are the “inherent instabilities” of capitalism.

The balance on financial markets is not stable. Apparent stability of the present tempts market players to become more and more willing to take risks. This lays the groundwork for the next crisis. Not exogenous shocks, but internal, systemic causes lead to it. “Stability leads to instability” was the crisis paradox for Minsky.

However, in times of long upswings with stable growth rates and the disappearance of inflation, nobody wanted to listen to him. Today the question is not just how stable are the financial markets, but how stable is our democracy? Is the stability permanent or aren’t there destabilizing tendencies in democracy, as with Minsky?

With the end of the Cold War and the fall of the Berlin Wall, the “end of history” was proclaimed – according to Francis Fukuyama. Western-style liberal democracy as an attractive alternative model that promises freedom and prosperity and would prevail worldwide. A mistake – as we know today.

One thing is certain, democracy has come under pressure – from outside and inside. Since 2004 there have been more autocratic states than democracies around the world. System competition threatens especially from authoritarian-dictatorial states like China.

The hope that increasing trade and economic integration would automatically lead to a democratic opening has been dashed. On the contrary: the mixture with which authoritarian-dictatorial forms of government promote economic development and prosperity is not only attractive for African states.

The war that Russia is waging against Ukraine is a direct attack on democracy and freedom, and just the outside of the system competition that has long since become a struggle in the digital space. Russia is also pouring disinformation over western democracies. Social bots simulate approval or rejection and thus manipulate the opinion on the Internet in a targeted manner.

Uncertainty and a loss of trust among many are the result. State regulation is difficult when the owners of the messenger services, on which hate and hate speech is spread, as with Telegram, are Russian billionaires and the servers are in Dubai.

But democracy also threatens to be destabilized from within. Democratic decision-making processes are increasingly complex and take too long. Important decisions in infrastructure or construction projects sometimes drag on for decades. The motto is prevention by involvement. This is how democracy tripped itself up.

Litigation and the legal imperative of individual interests impede the progress of the community. The inflationary use of the catchphrase “de-bureaucratization” in party programs and coalition agreements has so far been unable to do anything to combat systemic sclerosis.

Socio-economic factors also dim the luster of democracy. The promise of advancement and prosperity that was valid for decades after the war also strengthened democracy. Now we are experiencing economic decoupling.

The three “Ds” of deglobalization, demographics and decarbonization lead to noticeable cost increases. Productivity is falling, the peace dividend has dissolved with the war in Europe and global conflicts. Security costs.

The corona pandemic has left deep scars on national budgets and inflation on private purses. The German medium-sized society, so far an anchor of political stability, is under pressure. The erosion of prosperity – still at a high level – makes people vulnerable to extremes. The enemies of democracy know this and are mobilizing. Not just on the street.

There is also a battle for identities. Where common ground used to be in the foreground and social milieus gathered around social institutions such as church and trade unions, today the focus is on demarcation. Minorities complain that they are actually or supposedly disadvantaged and distance themselves from the community.

Many do this out of strategic interest in order to receive compensation or benefits. According to the motto: If you don’t get anything today, you didn’t shout loud enough yesterday. The sum of minorities does not make society, as former Vice Chancellor and SPD leader Sigmar Gabriel rightly stated. A worrying detachment from the center and radicalization of the fringes is taking place.

Just as the printing press enabled and advanced the Reformation, the Enlightenment and then democratization, the impact of digitization is not only changing the economy and society, but our entire life and ourselves. Digital communication and social media are already having a profound impact on politics and democracy. However, the promises of the Internet as a grassroots digital movement that would take everyone with it and democratize every last corner of society have turned out to be false.

Hate and hate speech online are serious threats to democracy. Long-term studies in the USA show that with personal dissatisfaction due to the permanent addiction to comparison, trust in democracy and its democratic institutions has fallen sharply. A shared public sphere with factual discussion is increasingly giving way to segmented filter bubbles in which self-affirmation and self-reinforcement prevail.

Even the truth has become negotiable in the age of alternative facts. Trump attorney Robert Guliani’s notorious statement, “Truth is not the same as truth.” The unfiltered shouting out of opinions and provocations does not yet replace a political discourse with weighing up the arguments of the other side to find the best possible solution.

The representative system of democracy is in crisis. Hardly any direct-democratic elements can help here. The increasing complexity of the environment can rarely be reduced to yes/no decisions. Parliamentarians and governments elected for a limited period have basically proven their worth.

Smart and forward-looking decisions require distance and time to weigh things up. Time and attention that many in the digital distraction no longer have or want to muster.

“Smartphone democracy” is not a solution. Henry Kissinger wrote more than 10 years ago in his book “World Order”: “The temptation to respond to digitally mediated demands from the masses can outweigh the effort to use the necessary judgment to chart a difficult course in accordance with long-term goals. The ability to distinguish between information, knowledge and wisdom is lost.”

In the “mood democracy” feelings count and less arguments. Affects triggered by posts and tweets steer attention toward short-term response rather than long-term reflection. This applies in particular to crisis prevention. It costs time and money and brings little glamor for the politicians involved. A crisis prevented is not a success in the media.

The understanding of democracy has also changed fundamentally. From a participatory to a consumerist attitude: decline in voter turnout. Declining membership of parties and erosion of the mainstream parties. Politics is understood by many as a “pizza service”. An ever-increasing level of expectation orders their individual menu of choice from their government or MPs. Life experience has already shown that this is impossible to achieve.

Disappointment is growing particularly quickly in East Germany. There seems to be a misunderstanding on the part of many. They assume that democracy is when exactly what they want happens. If they don’t get what they want, it’s not just disappointment or alienation, but the system question is asked.

That means: Democracy as such is called into question. Conspiracy theories fueled online are driving people onto the streets, strengthening the extremist fringes.

The lesson of Weimar is: Democracy only works with democrats. But only with enough people who stand for election and accept responsibility. Here, too, an exhaustion can be observed. Insults and threats not only on the Internet have already moved local politicians to give up. There is also negative selection.

Clever minds who are urgently needed in politics find better opportunities in science and business or do not want to bear the burden of time and psychological costs of attacks and possible shitstorms in social media on themselves and their families.

The number of MPs for whom the number of followers is more important than professional qualifications or experience is growing. This is not an improvement in the quality of democracy. So what to do?

A first step is to realize that freedom, democracy and a market economy are not unconditional and are automatically guaranteed forever simply by being enshrined in constitutional law. Democracy is also more than digital demoscopy. And political leadership is more than turning current opinion polls into politics.

Herfried Münkler puts it in a nutshell in his new book “The Future of Democracy”: the future of democracy will be decided by the citizens, their willingness to get involved, their expertise and their political judgment. So it’s up to us to avoid a Minsky moment of democracy.

Otherwise, as with Minsky, the apparent stability of democracy leads to instabilities that not only shake the foundations of our prosperity, but also the substance of our democracy. And we already have enough crises. Or?

About the authors: Roland Wöller was Professor of Economics and Minister of State for the Interior in Saxony from 2017 to 2022.

The original of this article “The Minsky Moment of Democracy” comes from Cicero Online.